Cepheid‘s (CPHD) sales under the HBDC (high burden developing countries) program are likely to get a boost from a $30 million funding approval from UNITAID. The approved fund would go a long way to facilitate access to Xpert MTB/RIF – a tuberculosis diagnostic test – and reduce the cost of use.

UNITAID is a global health initiative established in 2006 by the governments of Brazil, Norway, Chile, France and the UK to increase access to medicines in 94 low and middle income countries.

The funds will be used to roll out Xpert-based programs in 20 countries. It targets to bring down the price of each Xpert MTB/RIF cartridge from $17 to $10. This price reduction will enable an accelerated rollout of the test. The test was endorsed by the World Health Organization (“WHO”) in December 2010.

In fact the Xpert test enjoys certain advantages over traditional methods, which makes its geographical expansion all the more significant. The Xpert test diagnoses tuberculosis based on the recognition of the DNA of the tuberculosis bacillus, which is more reliable than currently used microscopy in most laboratories.

Moreover, results are available in only 90 minutes. The Xpert test also detects resistance to rifampicin, one of the most commonly used drugs for the treatment of tuberculosis.

Since the approval of Xpert MTB/RIF test by WHO in 2010, the adoption of Cepheid’s flagship product, the GeneXpert system, along with the test continues to grow in the HBDC market. More than 61 of the 145 eligible countries have since adopted, or are trialing, the test. However, the company remains cautious about limited visibility for HBDC sales due to the variability from quarter to quarter.

Cepheid’s 33% growth in the clinical business during the most recent quarter was driven by a 41% rise in clinical reagents sales to $54.4 million (up 11% on a sequential basis) on the back of a growing installed base and expanded test menu. Sales of clinical reagents in the commercial business grew 32% with growth of more than 30% in both North America and Europe while reagent revenue from HBDC business remained flat.

With a broad portfolio of tests, the company remains one of the leading players in the healthcare associated infection market. The company is working on expanding its portfolio, which should drive its top line going ahead. However, the competitive landscape remains tough with the presence of players such as Qiagen (QGEN) and Hologic (HOLX).

We have a Neutral recommendation on Cepheid. The stock carries a Zacks #3 Rank (Hold) in the short term.

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